Look at the way power & responsibility are distributed around society today and ask: can’t we do better? Welcome to ‘Question the Powerful’, a twice-monthly journal on politics & society. (For more information on Henry Tam and the Question the Powerful project, click on ‘The QTP Project’ under ‘Menu’).

Saturday, 6 September 2008

Let’s rewind and replay the mantra: leave the powerful businesses to do as they see fit, especially those in the financial sector because in deciding what would make the most money for themselves they are deciding what would generate the greatest prosperity for the whole economy. Remove regulations from them so that they are free to make us all richer.

And what happened next? Share prices went up to unrealistically high levels on the back of people spending money they had been encouraged to borrow beyond their means of paying back. Share prices dived, confidence dwindled, lenders cut back lending, less spending, less production, more unemployment, and the depression began.

We rewound too far. That was the Great Crash of 1932. The crass embrace of market freedom allowed businesses to behave as selfishly and irresponsibly as they liked until they brought the whole economy crashing down on everyone. Lessons were learnt. Out of the revulsion against unrestrained corporate power, state intervention to curb the excesses of business behaviour, to protect workers and those losing their jobs, and provide social and economic stability became the norm.

But if we fast forward to the 1970s and 1980s, the market mantra was in full flow again. All good was to come from powerful businesses being given more freedom to act. Reduce regulations controlling them. Enable them to take over functions of the state. Weaken the unions which might get in their way. Above all, tax them less and less so that the rich could get richer, and the poor would be more desperate than ever to borrow money from the deregulated lenders.

Throughout the 1990s, commentators warned that the greater freedom of the corporate sector was not leading to greater responsibility. In the financial world in particular, with taxes minimised, bonuses unlimited, the common practice was to make as much money as possible by lending to people, even if they were already heavily in debt. The bigger the debt, the higher the returns on the forecast sheet, the more those who raised the lending levels would be rewarded. So they all celebrated the escalation of their wealth until someone realised that if people were unable to pay their debts, there would be no profit at all. Panic set in. Credit started to dry up. What if the people we’ve entrusted our money with don’t have enough cash flow themselves? More panic? No, that can’t happen, the people who for decades have demanded more and more deregulation knew what they must do – turn to the government and asked for public money to bail them out. Yes, these people who want to be left alone by government, who successfully got their wish of contributing less to the public purse as taxpayers, they now want the government to rescue them by drawing on funds which others less well-off have had to help sustain.

After 1932, President Roosevelt tried to persuade the business sector that they needed to work with the government to put an end to their irresponsible wrecking of the economy. Corporate leaders were interested in the government clearing up the mess they had made, but they had no intention of surrendering their power to make money as they saw fit, regardless of the suffering it would cause others. To his eternal credit, Roosevelt did not get scared off by the corporate barons. Instead he put his weight behind a series of legislation to bring businesses under tighter control by the government. When he famously spoke about the four essential freedoms, the freedom to crash was decidedly not one of them.